Jan. 4 (Bloomberg) -- French President Jacques Chirac, seeking to encourage investment, said the government will channel 2 billion euros ($2.7 billion) from asset sales into a fund to back research and consider tax breaks for ``long-term'' stock investors.

``Each time companies, in cooperation with mid-sized businesses, invest in innovative industrial programs, the government will invest the same amount,'' Chirac, 72, said in a speech in Paris today to business and union leaders.

By diverting proceeds from the state's planned sale of companies such as Electricite de France and Areva SA away from cutting France's record 1-trillion euro debt level, Chirac is aiming to boost growth and hiring ahead of 2007 presidential elections. The economy stagnated in the third quarter, the government said today, reducing its 0.1 growth estimate, amid a jobless rate of 9.9 percent and a drop in consumer spending.

Chirac said that to encourage household spending, the biggest part of the economy, he wanted to increase consumers' access to credit, translate higher property values into more spending, and provide incentives to invest in stocks. He also said he would cut income taxes next year.

``Real estate capital gains are free of tax after 15 years,'' Chirac said. ``The same must be done for investment in stocks, which generates growth.''

Image Change

Frederic Plisson, a fund manager at Financiere de L'Echiquier in Paris, which oversees $1.9 billion, said encouraging long-term stock holdings may boost individual investments in equities.

``It can give a long-term image to stock investments, which the French now consider more speculative,'' said Plisson. ``The stock market is marked by the bubble in 2000 and the heavy losses. This could change that image.''

Business spending on research accounted for 54 percent of total French spending in this field in 2002, about the average for the European Union, according to figures by the Organization for Economic Cooperation and Development. That compares with 63 percent in the U.S. and 74 percent in Japan.

``France is lagging behind in terms of technological investment, so why not try pouring in some public money'' as an incentive, said Laure Maillard, an economist at Ixis CIB in Paris. ``Two billion euros by 2007 isn't a lot.''

France's research ministry, which coordinates non-military government research spending, has a budget of 9.3 billion euros this year, up 3.8 percent from last year.

Chirac said the research fields he wanted to encourage included solar energy, low-pollution cars and pharmaceuticals.

`Dangers' to Growth

Concerns over job security led to a 0.2 percent drop in third-quarter consumer spending, hurting sales at companies including Club Mediterranee SA, Europe's largest resort operator and Carrefour SA, Europe's biggest retailer. Households saved 15.6 percent of their disposable income in the third quarter, up from 15.1 percent in the previous three months.

The cost of Brent crude oil prices, which traded at $38.9 a barrel at 10:57 a.m. in London today, surged to a record of $51.95 a barrel in London on Oct. 27, leaving consumers with less money to spend and squeezing corporate profits.

Higher oil costs and the record appreciation in the euro are ``dangers'' to economic growth, Chirac said. The euro reached a record of $1.3666 against the dollar on Dec. 31.

The Organization for Economic Cooperation and Development on Nov. 30 cut its estimate for French growth next year to 2 percent from a projection of 2.6 percent. The Paris-based OECD also trimmed its prediction for 2005 growth in the dozen nations sharing the euro to 1.9 percent from 2.4 percent.

Stability Pact

The slowdown may drive France's deficit above the European Union ceiling of 3 percent of gross domestic product for the fourth straight year. Chirac today pressed anew for relief from the EU rules. He repeated proposals that have been resisted by other EU nations and the European Central Bank to water down deficit language.

The EU's stability and growth pact ``must not worsen the situation of countries in recession or in a phase of very weak growth,'' he said. ``Day-to-day government spending aren't the same kind as defense or investment expenditure, such as large infrastructure, universities, innovation or research. The stability pact will have to treat these spending differently.''

European Commission President Jose Barroso on Nov. 24 warned governments against undermining the euro's credibility by going too far in loosening the rules curbing budget deficits.

To contact the reporter on this story: Francois de Beaupuy in Paris fdebeaupuy@bloomberg.net.

Last Updated: January 4, 2005 07:04 EST